ULC

Residential Mortgage Satisfaction Act Summary

When a mortgage is to be paid off, the mortgage holder generally owes the landowner two things: 1) a payoff statement showing the exact amount of funds required to pay off the loan on a given payoff date, and 2) a publicly recorded document in the local land records clearing the title of the mortgage lien once it is paid.

The securitization of mortgage obligations has complicated the payoff process. Historically, the entity holding the mortgage was a local bank or thrift and it was reasonable to expect title clearance to occur roughly at the same time as the sale or refinance of mortgaged land. The local mortgagee would simply execute, deliver, and record a document in the local public land records showing satisfaction of the mortgage lien, either at the time payment was received or within a few days’ time. Today that is no longer feasible. As a consequence of the secondary mortgage market that has developed over the last few decades, the mortgagee who provides the purchase money to the landowner is almost never the same entity that holds the mortgage at the time it is paid off. Consolidation in the mortgage loan and title insurance industries and the now-common practice of mortgage holders outsourcing loan servicing responsibilities have further complicated these transactions. In this era of remote mortgage holders, the timely transmittal of payoff statements and recording of mortgage satisfactions has become problematic, frustrating landowners who need a marketable title to complete a property sale. The Uniform Residential Mortgage Satisfaction Act (URMSA) was first promulgated in 2004 to help address the issue.

Most states have enacted a statute on mortgage satisfaction, but the law has no semblance of uniformity. In what is clearly an interstate, national market for mortgage loans, mortgagees (called secured creditors in URMSA to conform to the language of the Uniform Commercial Code) must be prepared to meet different satisfaction requirements in each and every state, raising the cost of compliance. When a creditor must process a large number of transactions, it reasonably may choose to prioritize those transactions in states that have the strictest penalties for non-compliance. URMSA provides a better solution.

Payoff Statements under URMSA

URMSA provides the mortgagor (or more typically, a title insurer, attorney, lender, or other agent of the mortgagor) with the right to request a payoff statement for a specified payoff date up to 30 days in the future by delivering a “notification” to the secured creditor. If the notification contains all of the required information, the secured creditor must issue a payoff statement within 10 days, or be liable for any actual damages incurred by the mortgagor, including attorney’s fees, plus a penalty of $500. Punitive damages are not available.

A secured creditor that issues a payoff statement understating the required payoff amount may issue a corrected statement, but may not enforce its mortgage lien against a bona fide purchaser that reasonably and detrimentally relied on the understated payoff amount. If the mortgage is a recourse loan, the secured creditor may still recover the remaining amount due from the borrower as a personal obligation.

Mortgage Satisfaction Recording under URMSA

A mortgage satisfaction document must be recorded within 30 days after the mortgage is fully paid or the secured creditor may face liability for the mortgagor’s actual damages. If the satisfaction is not recorded within that time, and the mortgagor sends the creditor a demand (by any method that provides proof of receipt), the mortgagor has another 30 days to record a satisfaction document, or be liable for an additional $500 penalty, court costs, and reasonable attorney’s fees. Punitive damages are not available.

URMSA protects secured creditors by eliminating liability when the creditor has a reasonable procedure in place for recording mortgage satisfactions but was unable to comply with its obligations under the act due to circumstances beyond the creditor’s control. URMSA also allows for a “Document of Rescission” with which a secured creditor may rescind an erroneous recording of a mortgage satisfaction, and thereby limit any potential liability resulting from the error.

URMSA’s “Self-Help” Solution

In certain cases, a mortgagor may find it impossible to obtain a recorded satisfaction document from the secured creditor. For instance, the creditor that received the payment may go out of business before recording the mortgage satisfaction. URMSA provides a self-help remedy for such cases when a person has no other means of clearing title.

An “Affidavit of Satisfaction” may be filed by a “Satisfaction Agent” if the secured lender neglects to file a mortgage satisfaction within the allotted time. A “Satisfaction Agent” must be either a title insurance company or a licensed attorney because of the potential liability involved. Their expertise and financial soundness provide a sense of security for the secured creditor, and provide an alternate method for clearing title when the landowner has no other option.

Standardization

The contents of payoff statements, mortgage satisfactions and affidavits are very particularly established in URMSA. This encourages uniformity of documentation, which is especially important for recording in the land records. There is a specific form for mortgage satisfactions in URMSA, which may be recorded in any enacting jurisdiction, and may not be rejected when presented to recording officers.

Conclusion

The Uniform Residential Mortgage Satisfaction Act would replace bits and pieces of legislation that exist in many states. It would establish uniform regulations for issuing payoff statements and recording mortgage satisfactions, resulting in a predictable process that benefits both mortgage lenders and property owners. Finally, URMSA provides an alternate method of clearing title by affidavit when the landowner is unable to secure proof of the payoff from the mortgage holder. State legislatures are urged to consider enacting URMSA as soon as possible.